Investment Agreement Between Individuals

personal investment agreement templates

An investment agreement between individuals formalizes the terms and conditions of a financial arrangement where one person (the investor) provides capital to another (the recipient or investee) for a specific purpose, typically business-related, with the expectation of future returns. This agreement serves as a legally binding document protecting both parties and outlining their respective rights and obligations.

Key components of the agreement often include:

Parties Involved: Clearly identifies the investor(s) and the recipient(s) by their full legal names and addresses.
Investment Amount: Specifies the exact amount of money being invested, the currency, and the method of payment (e.g., wire transfer, check).
Purpose of Investment: Clearly defines how the invested funds will be used. Vague descriptions can lead to disputes. For example, instead of saying “business expansion,” it might state “for purchasing equipment for manufacturing widgets as described in Exhibit A.”
Equity or Debt: States whether the investment is in the form of equity (ownership stake) or debt (loan). If equity, it details the percentage of ownership the investor receives. If debt, it specifies the interest rate, repayment schedule, and any collateral.
Valuation: If equity is involved, it outlines the company’s current valuation. This is crucial for determining the investor’s ownership percentage relative to the investment. It may refer to a separate valuation report.
Return on Investment (ROI): Describes how the investor will receive returns. This could be through dividends, profit sharing, sale of the business, or repayment of principal plus interest (for debt investments). Specific timelines for ROI should be included.
Management and Control: Addresses the investor’s involvement in the management of the recipient’s business. This might include voting rights, board representation, or veto power over certain decisions.
Confidentiality: Establishes that both parties will keep the terms of the agreement and any proprietary information shared confidential.
Representations and Warranties: Includes statements by the recipient about the accuracy of information provided to the investor, such as financial statements and business plans. These serve as assurances upon which the investor relies.
Term and Termination: Defines the duration of the agreement and the conditions under which it can be terminated, such as breach of contract or failure to meet specific performance goals.
Governing Law and Dispute Resolution: Specifies which jurisdiction’s laws will govern the agreement and the method for resolving disputes, such as mediation or arbitration.
Amendments: States that any modifications to the agreement must be in writing and signed by both parties.

It’s crucial for both investors and recipients to seek independent legal counsel before signing an investment agreement. An attorney can review the document, explain the legal implications, and ensure that it protects their interests. A well-drafted agreement minimizes the risk of future disputes and sets the stage for a successful business relationship.